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SB-747 Banking development districts.(2019-2020)

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Date Published: 03/27/2019 09:00 PM
SB747:v98#DOCUMENT

Amended  IN  Senate  March 27, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill
No. 747


Introduced by Senator Bradford

February 22, 2019


An act to amend Section 1020 of the Financial Code, relating to banking. An act to add Division 18 (commencing with Section 40000) to the Financial Code, relating to banking development districts.


LEGISLATIVE COUNSEL'S DIGEST


SB 747, as amended, Bradford. Banking Law. Banking development districts.
Existing law, the Banking Law, provides for the regulation of banks by the Department of Business Oversight. Existing law establishes the Bank on California Program within the department as a voluntary collaborative initiative that assists underserved Californians in opening a bank or credit union account.
Existing law, which is known as the Time Deposit Program, requires the Treasurer, if possible, to deposit state money into an eligible bank. Existing law defines eligible bank to mean a bank selected by the Treasurer that meets certain requirements, including that it received an overall rating of not less than satisfactory in its most recent evaluation by the appropriate federal financial supervisory agency of the bank’s record of meeting the credit needs of the state’s communities, including low- and moderate-income neighborhoods.
This bill would create the Banking Development District Program within the department, and would establish a process for a local agency, in conjunction with a bank, to submit an application to the department to establish a banking development district, in accordance with certain requirements. The bill would require the department to provide information on the Banking Development District Program to the Treasurer, and would specify that the Treasurer may utilize the Banking Development District Program when promoting the Treasurer’s Time Deposit Program. The bill would require the department to adopt rules and regulations for the establishment and maintenance of banking development districts and to evaluate and approve applications for the designation of banking development districts in accordance with certain requirements. The bill would require the department to develop and provide certain incentives to banks located in a banking development district, and would authorize the department to work with local agencies and economic development officials to develop additional local incentives for participating banks. The bill would also require the department to establish and post on its internet website a performance review process for the program, as specified.

Existing law, the Banking Law, provides for the licensure and regulation of banks, under the supervision of the Commissioner of Business Oversight, and requires that a state bank be incorporated, as specified. Existing law requires that a request for authority to organize and establish a corporation to engage in the banking business be set forth in an application in a form and containing any information that the commissioner may require along with a specified fee.

This bill would make nonsubstantive changes in these provisions.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NOYES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares all of the following:
(a) Too many Californians are disconnected from the financial mainstream. According to the Federal Deposit Insurance Corporation (FDIC), 6.5 percent of households, including nearly 15 percent of the minority population, were “unbanked,” meaning they lacked a basic checking or savings account, in 2017. In California, 7.4 percent of adults did not have a checking or savings account in 2017, according to the FDIC. Recent market research indicates that Fresno and Los Angeles have the second and third highest percentages of unbanked residents in the country. In San Francisco, the Brookings Institution found that one in five adults, and half the city’s African Americans and Latinos, do not have bank accounts. The unbanked are most likely to be people who are less educated and have lower incomes.
(b) The unbanked poor pay more to conduct their financial lives. Utilizing check cashing outlets and money order services to pay bills and expenses can have costly side effects as the result of fees and service charges.
(c) Families without accounts often do not have a safe place to keep their money. They may walk around with large amounts of cash in their pockets, or keep it at home in a coffee can. Robberies can be more prevalent around check cashing outlets. A burglary, or a fire, could cost them their life’s savings in a matter of moments.
(d) Lower income households often pay more for financial services. According to a Brookings Institution study, a full-time worker without a checking account could potentially save as much as $40,000 during the worker’s career by relying on a lower cost checking account instead of check cashing services. As a result, without a checking account or lower cost checking account, lower income families have added difficulty saving for and investing in wealth-building assets, the investments they do make are too often not in their best financial interest, and business opportunities in lower income markets are unduly depressed.
(e) A bank account is also the first step to financial security and asset building for many families. A bank account helps people take the first step onto this path. Without an account, it is much more difficult to get well-priced car loans, credit cards, or mortgages, which are the exact financial tools needed to climb up the economic ladder. Many families stay stuck on a different and more expensive path, going to pawn shops, payday lenders, and rent-to-own stores.
(f) While financial institutions may see the long-term business potential of underserved areas, they may have a short-term concern that it would take a number of years before they can attract enough retail deposits to become viable. Those concerns are magnified by the fact that lower income workers often need to use banking services in off-business hours because they work in multiple jobs, making it more difficult for banks to attract customers with standard business practices.
(g) In 1999, the State of New York established a Banking Development District Program and made available a range of state and city incentives to participating financial institutions. The incentives provided through the program aim to help banks get over short-term obstacles to profitability, enable them to branch into neighborhoods with long-term business potential, and better serve low-income consumers with existing bank branches.
(h) It is the intent of the Legislature in enacting this act to create a Banking Development District Program to spur increased and enhanced banking services in underserved communities that will spur greater financial inclusion and promote local economic development. The desired outcome is that more Californians will enter the financial mainstream and build savings and wealth through participating banks’ offerings and marketing of reasonably priced transactional, loan, and credit products.

SEC. 2.

 Division 18 (commencing with Section 40000) is added to the Financial Code, to read:

DIVISION 18. BANKING DEVELOPMENT DISTRICT PROGRAM

40000.
 The Banking Development District Program is hereby created in order to encourage the establishment of banking branches that provide needed products and services in specifically designated geographic locations where there is an underserved community. These designated geographic locations shall be known as banking development districts. A bank may seek to participate in the program in order to do either of the following:
(a) Open a new outlet in an area designated as a banking development district.
(b) Develop and market a new product line or group of services in an existing outlet in an area that is designated as a banking development district.

40001.
 For purposes of this division:
(a) “Bank” means any commercial bank, savings bank, savings association, or credit union.
(b) “Banking development district” is a specifically designated geographic location comprising an underserved community that has been designated by the department pursuant to this division.
(c) “Department” means the Department of Business Oversight.
(d) “Local agency” means a city, county, whether general law or chartered, or city and county.
(e) “Unbanked” means a person who lacks both a basic checking account and a savings account.
(f) “Underbanked” means a person who has a bank account but is not fully integrated into the financial mainstream.
(g) “Underserved community” means a remote location or impoverished area that lacks banking services commensurate with the services provided to higher income areas with a population of similar size.

40002.
 (a) The Banking Development District Program shall be established within the department.
(b) The department and local agencies may compile a list of underserved communities or regions that lack a concentration of banks and services in order to provide banks with a clear demonstration of those areas that are in the most need.
(c) The department shall provide information on the Banking Development District Program to the Treasurer, and the Treasurer may utilize the Banking Development District Program when promoting the Treasurer’s Time Deposit Program consistent with Chapter 4 (commencing with Section 16500) of Part 2 of Division 4 of Title 2 of the Government Code. The Treasurer may take into consideration banking development district areas as a criterion when authorizing participation by financial institutions in the Time Deposit Program consistent with Chapter 4 (commencing with Section 16500) of Part 2 of Division 4 of Title 2 of the Government Code.
(d) In order to participate in the Banking Development District Program, a local agency, in conjunction with a bank, shall submit an application, in the form and manner prescribed by the department, to the department for the designation of an underserved community as a banking development district.
(e) The application shall include all of the following components:
(1) A clear description of the current and anticipated bank product and service needs of the community.
(2) A demonstration that existing institutions, including the bank’s own branches in the community, are not meeting these needs.
(3) A demonstration that by coming into the community, or introducing and effectively marketing additional product lines or services suited for lower income consumers in an existing branch, the bank in question is prepared to specifically meet the community needs.
(4) Any other information the department determines by regulation is necessary and convenient to further this division.

40003.
 The department shall set forth the selection criteria to evaluate a local agency’s application. The selection criteria shall aim to accomplish the following:
(a) Result in needed and responsible bank products and marketing of those products to local consumers.
(b) Be flexible and allow for differences in local markets.
(c) Encourage safety and soundness.

40004.
 The department shall evaluate and approve applications submitted pursuant to Section 40002. In evaluating whether to approve the application, the department shall evaluate the extent to which the bank is prepared to offer and to market products suited for lower income consumers, including those products that accomplish the following:
(a) Help unbanked Californians open starter accounts. These accounts shall have features to help people overcome barriers that prevent them from opening accounts that may include the following:
(1) “Second Chance” type features for clients who are listed on Chex Systems or similar consumer reporting databases.
(2) No monthly balance requirements.
(3) Limited low-cost overdraft protection plans.
(b) Build financial literacy of community members.
(c) Provide effective ways to help low-income consumers build savings.
(d) Provide effective ways to help low-income consumers build or improve a credit record.
(e) Provide competitively priced mortgages and auto loans.
(f) Offer microloans and microlending products and services.
(g) Provide a range of well-priced loans and other products for small businesses.
(h) Provide specialized marketing to inform community members about the products.
(i) Provide specialized training of staff, including both frontline and customer service staff, to meet the needs of community members.

40005.
 The department shall develop and provide a range of incentives to help banks located within a banking development district overcome short-term costs that prevent them from offering products and services that have long-term business potential. The incentives shall be all of the following requirements:
(a) Valuable to banks.
(b) Significant enough to encourage banks to locate in an underserved community or develop new products and services within existing branches but small enough that a branch’s financial success requires services to the community.
(c) Require reauthorization every two years.

40006.
 Upon designation of a banking development district by the department, the bank located within the banking development district shall be eligible for the following range of incentives:
(a) Access to interest-bearing time deposits of public funds, as deemed appropriate and approved by the department.
(b) Incentives offered by local agencies as deemed appropriate by the local agency and the Treasurer.
(c) Any other incentive developed under Section 40005 or 40007.

40007.
 The department may work with local agencies and economic development officials to develop additional local incentives for participating banks. These local incentives may include, but shall not be limited to, the following:
(a) Local agency deposits.
(b) Local agencies may help banks locate suitable commercial space for branches and may provide real estate assistance.
(c) Local tax incentives.
(d) Workforce development. Customized training may be developed for tellers, back office or administrative staff, information technology, security, and other select job categories.

40008.
 The department shall adopt rules and regulations for the establishment and maintenance of banking development districts, as provided for in this division.

40009.
 The department shall establish and post on its internet website a performance review process to ensure that a bank taking part in the Banking Development District Program is meeting its goals and initiatives, and its services are having a recognizable impact on underserved communities.

SECTION 1.Section 1020 of the Financial Code is amended to read:
1020.

The request for authority to organize and establish a corporation to engage in the banking or trust business shall be set forth in an application in a form and containing any information as the commissioner may require and shall be accompanied by a fee of five thousand dollars ($5,000).